One commissioner is now a quorum

The Securities and Exchange Commission has changed its rule on how many commissioners it takes to act. Under the amended rule, a single commissioner is now a quorum on any matter from which every other sitting commissioner is disqualified. The commission adopted the change on 30 September and made it effective on 2 October, the day Hester Peirce's resignation took effect. The SEC's list of commissioners now shows two names: the chairman, Paul Atkins, and Mark Uyeda. With two in office, one recusal leaves the other able to act for the commission alone.

The release, number 34-106537, is five pages long. It notes that the Securities Exchange Act, "unlike many statutes that establish Federal agencies, does not establish a quorum requirement for the Commission." The SEC has filled that gap itself. By custom three members made a quorum, and in 1995 the commission wrote that into Rule 200.41. Two exceptions came with it. If fewer than three commissioners are in office, the number in office is a quorum. And if disqualifications on a particular matter leave exactly two commissioners able to take part, those two are a quorum for that matter. The 1995 commission stopped there. It did not believe, the new release recalls, that it was necessary to provide that one commissioner may constitute a quorum when disqualifications left only one available.

That has now changed. The new text says that where the number in office minus the number disqualified "is two or one, that number of members shall constitute a quorum for purposes of such matter." Three remains the quorum when three or more can take part. The change applies to the case of one commissioner left after recusals, and with a two-member commission that case needs only one recusal.

The commission's explanation is brief. "In prior years, the Commission has occasionally been in the position of having fewer than three members and believes it prudent to adapt its quorum rule to further accommodate that contingency." And "situations often arise in which one or more Commissioners have disqualified themselves or are otherwise disqualified from participating in a matter. When such situations arise, it is important that the Commission be able to continue to conduct business." The summary states the purpose as promoting "flexibility and finality of agency rulemaking." The release gives no example of a matter that would have been stuck under the old rule, and does not say whether any pending matter prompted the change.

There was no comment period. The SEC found that the amendments "relate solely to agency management and organization", are not a substantive rule and "do not substantially affect the rights or obligations of non-agency parties", so the notice-and-comment provisions of the Administrative Procedure Act did not apply. For the same reasons it found the Small Business Regulatory Enforcement Fairness Act and the Regulatory Flexibility Act inapplicable, and it expects no effect on competition.

The effect on parties outside the agency comes through finality. An agency action taken without a quorum can be challenged on that ground. Putting the one-member case into the rule removes that argument for the matters it covers, and it matters more with the commission at two of its five seats. Caroline Crenshaw, its last Democratic member, left in January, and no nomination had been made for her seat when Peirce announced her resignation, Cointelegraph reported. The Commodity Futures Trading Commission's website lists one member, its chairman, Michael Selig. Between them, the two main US markets regulators have three commissioners.

The timing matters for the rules now in progress. On 30 September and 1 October the three-member commission proposed rules on performance fees for advisers, interval funds, multiple share classes for closed-end funds and crypto custody, each with a 60-day comment period after publication in the Federal Register. Unless new commissioners are confirmed first, final votes on all of them will be taken by a commission of two, and on any matter where one of them is recused, by one. The rule permitting that was signed "By the Commission" on 30 September, while it still had three members, and took effect on the day it had two.